Protecting Your Parents: Identifying and Preventing Elder Financial Abuse in 2021
A reality many of us face is our parents needing assistance as they grow older. One crucial aspect of caring for your parents is identifying (and protecting them from) elder financial abuse from strangers, friends, or even family members. According to one estimate, seniors collectively lose up to $30 billion a year to elder financial abuse. Since prevention is far easier than recovering stolen funds, here are leading warning signs to help you protect your parents.
7 Signs of Elder Financial Abuse
Warning signs may include:1
- Unusual activity in bank and retirement accounts, such as large or unexplained withdrawals
- Withdrawals from an inactive account
- A newly opened joint account
- New credit card balances
- Bank and credit card statements sent somewhere other than your parents’ home
- Suspicious signatures
- Closing a Certificate of Deposit or savings account without worrying about penalties
- Gifts and loans to “friends” the family has not met
- Wire transfers
8 Tips For Preventing Elder Financial Abuse
Tip #1: Talk to Your Parents About Money
Reach out to your parents and stay in touch with them regularly. Ensure they are paying their bills and, if applicable, find out who is doing it for them. Your parents may hesitate to admit that they need help, so you can ease into the discussion by asking them for advice or discussing your own money concerns. Once they’re more comfortable, your parents may let you help them.
Tip #2: Automate Your Parents' Bills or Deposits
Automating your parents’ payments with direct debits from their account can help keep their expenses routine and organized, reducing the chance that they will fall victim to a scam.
Similarly, you can automate transfers into their checking account, as they may have funds coming from various sources such as Social Security, pensions, and annuities.
Tip #3: Have Your Parents' Legal Documents Ready
Do you know where to find parents’ legal documents? Having these at hand is critical in handling their finances or aiding them during an emergency.
These documents could include:
- Durable Powers of Attorney
- HIPAA Release Forms
- Healthcare Proxies, like Living Wills and Health Care Powers of Attorney
- Wills
- Trusts
Encourage your parents to be especially careful when choosing someone to act for them under a Power of Attorney (POA), as their designee will be authorized to handle finances. Having multiple POAs can also be beneficial as it can allow any one of several people to take the burden of tasks on your parents’ behalf. Experienced legal counsel should draft any documents your parents may need—do-it-yourself alternatives, even on official forms, often produce unintended results and can do more harm than good.
Tip #4: Consolidate Your Parents' Financial Accounts
Many people accumulate several accounts over the years, and it can become challenging to manage them. Practice caution when consolidating and moving accounts, so you don’t incur penalties or unnecessary capital gains. Additionally, you’ll need to respect beneficiary designations, or you could face legal consequences.
Tip #5: Encourage Your Parents to Use Credit Cards Over Cash
If your parents send cash to a scammer, it will be much more difficult to trace than if they pay with a credit card.
If they were to purchase with a card, the credit card company can:
- Help to protect against identity theft
- Allow past transactions to be reviewed
- Reimburse any stolen money
There are time limits, so be sure someone responsible promptly reviews both banking and credit card statements.
Tip #6: Encourage Your Parents to Get Regular Health Exams
Cognitive and physical decline can limit your parents’ abilities to care for themselves and manage their finances. Stay current on your parents’ health situation and make sure they keep their doctors’ appointments. Knowing their health situation can help you determine how much assistance they’ll need in managing their finances and daily life, and increases the chance they’ll get the help they need to limit or reverse any cognitive issues.
Tip #7: Ask Your Parents to Consider Third-Party Oversight For Their Finances
While it can be ill-advised to have two people named in a single Durable Power of Attorney, it can help to have an extra set of eyes on your parents’ finances to prevent their representatives or trustees from taking advantage of them.
An extreme option may be to place their assets in an irrevocable trust naming someone else as the trustee. Your parents would be unable to withdraw money from any account owned by the trust without consulting the trustee, making it much more secure. When using this arrangement, ask the attorney drafting the document whether your parents should name a trust protector or other special representative to monitor the trustee’s actions and ensure that they are acting in the beneficiaries’ best interests.
Many older people would resist giving up this level of independence; your parents may consider it if you speak to them about the importance of their safety.
Tip #8: Suggest That Your Parents Consult a Financial Advisor
Determining the best course of action for your parents’ assets may be overwhelming for you. Consult with a fiduciary financial advisor who will help you and your parents feel confident in your financial decisions. A financial advisor working on your parents’ behalf can also keep an eye open for odd transactions or requests.
Using these steps to establish a system of checks and balances will help protect your parents from fraud. Remember that communication is vital: you want your parents to see your interest as welcome support, not an attempt to deny them their independence. The care you take with this discussion can make the difference in your ability to be proactive with these tips, rather than having to wait until your parents become victims of financial abuse.
Be sure to check out our most recent video, where Ken discusses unemployment fraud and credit card debt.